How prevalent is bad advice? (Part I)

What does ‘bad advice’ look like?

Bad advice is often associated with advisers that chase the big commissions to the detriment of the consumer. Prior to the credit crunch this was far more widespread which, with hindsight, shows the level of greed involved given the high procuration fees at the time and the abundance within the market as a whole. Now procuration fees have fallen, work levels are up, volume of clients and transactions are also both down, but surely we don’t expect all the greedy brokers to have left the market?

Greed is just one of the problems of bad advice. Another is laziness and complacency. There are plenty of brokers that stick to what they know and rarely deviate. This is undoubtedly a slow and slippery path to bad advice. It is easy internally to justify this approach as you’re not intending to offer poor advice to the client. But if you don’t frequently take a look at the market around you, when you receive a client that is better served outside your comfort zone then you will surely fail them. For any readers getting worried, the fact that you’re reading this means you are unlikely to fall into this trap!

Laziness and complacency can also result in a broker being less likely to take on the more complicated cases. But a more common reason for this is usually just workload. In a market where borrowing is so difficult for many applicants, brokers are busy; in an environment where a broker’s workload per completed mortgage is rising, fee competition is strong and procuration fees are so low, many brokers focus on the ‘easier’ cases to the detriment of the cases that are perceived to be more difficult. Who can blame them? It certainly shows that the procuration fees payable in this sector, whilst higher that recent times, are still not enough to motivate many brokers. The net effect for the consumer is that they are declined by the high street, approach one or two brokers who fail to provide the support and in the end the consumer leaves with the impression that they cannot get a mortgage. That too is bad advice.

Network Havens

Appointed Representatives should be free from these issues, right? With a network to ensure that their MI is assessed and their advice reviewed, surely this could never happen? Wrong. Restricted panels, a heavily risk averse approach and other network failings all cause brokers to circumvent networks whenever they can (yes, they still try) and encourage some of the failings that lead to bad advice through a narrow control of distribution. How can that be in their clients’ best interests? How is that good advice?

Fear of the regulator can drive brokers into the protective cocoon of a network model but the restrictions will surely have an impact on their freedom to deliver the best outcome for the client. There are exceptions of course; every network varies and there is also the occasional ‘pass’ to go off panel.

But on the whole, if you do not have the freedom to consider the market from a wider perspective, you and your clients will lose out.

Your Perspective

Of course, we all come at this from our own unique perspective. Before I discuss just how much bad advice is out there, what should be done and the future of advice in the second part of my blog, I would be grateful for your own views on the above, bad advice in general, how much of it is out there and what needs to be done.